Behold the patent cliff: U.S. drug market shrinks for first time

U.S. drug spending dropped last year. While that may be welcome news for healthcare budgets, it's not so good for branded drugmakers. It may not be so good for patients, either.

According to an annual analysis of the U.S. drug market by the IMS Institute for Healthcare Informatics, nominal drug spending dropped by 1% in 2012 to $325.8 billion. It was the first-ever decline in that measure, said Michael Kleinrock, the institute's director of research development. Real, per-capita spending fell even more, by 3.5%.

The patent cliff is, of course, a big part of that; loss of exclusivity delivered a $28.9 billion blow to those brands. In all, branded drug spending dropped by $11.4 billion, to $230.2 billion. But the sluggish economy put a damper on things, too. For the third year in a row, patients visited doctors less often. Office visits declined by slightly less than 1% last year after dropping more precipitously the previous two years.

So while patients may have been able to get their prescriptions filled at rock-bottom prices, some never saw a doctor in the first place. That mixed picture is what prompted the report's title, Declining Medicine Use and Costs: For Better or Worse. "We're concerned in the sense that if patients don't visit the doctor or use healthcare as they perhaps should, if they have a chronic condition that's preventable or treatable, we may see worse outcomes for those patients in the health system overall," Kleinrock said during a press briefing.

For generics makers, the drop in overall spending showed that most prescriptions were filled with their drugs. Generics accounted for 84% of dispensed scripts--and overall spending on copycat drugs actually grew by $8 billion, offsetting that declining outlay for branded meds.

The arrows weren't all pointing downward on the branded side of things. Sales of newly introduced drugs--products that have been on the market for less than 24 months--actually grew. Last year, new meds accounted for $10.8 billion in spending, up from $10.3 billion in 2011. True to the recent trends in pharma, the lion's share of new-drug spending came in the specialty category.

And which were the lucky 5 drugs whose sales drove that increase? Vertex Pharmaceuticals' ($VRTX) hep C treatment Incivek, Regeneron's ($REGN) macular degeneration drug Eylea, Amgen's ($AMGN) bone drug Xgeva, Novartis' ($NVS) multiple sclerosis pill Gilenya, and Bristol-Myers Squibb's ($BMY) melanoma treatment Yervoy.

Unfortunately for patients, another upward trend was seen in their share of healthcare costs, drugs included. Almost a fifth of insured patients were members of high-deductible plans, and costs for these patients have grown sevenfold over the past 5 years, the IMS Institute found. Patients in PPO plans have also seen their deductibles and co-insurance shares grow.

Together with the ongoing decline in physician visits, the higher out-of-pocket costs should raise questions, or at least inspire some critical thinking, Kleinrock said. "It's all linked, all related," he said. "Certainly in 2012 we appear to have begun to bend the cost curve... But the 'better or worse' part of that title is important."

- read the IMS Health release

Special Report: Top 15 drug patent losses for 2013